Cannabis REIT Up 33% in 2021 and Eyeing New High

Commercial Building - REIT

2021 has been a tough year for U.S. cannabis stocks.

The Advisor Shares US Cannabis ETF (MSOS) is down 20% on the year and 45% from the 52-week high.

However, while most U.S. cannabis stocks have struggled, one industry leader has delivered a market-crushing 33% gain on the year.

This early industry leader just:

  • reported 100% revenue growth in 12 months
  • paid a quarterly dividend of $1.32 per share, up 32% from last year
  • saw shares hit a new all-time high

Innovative Industrial Properties (NYSE: IIPR) is one of the largest companies operating in the cannabis industry with a market value of $6 billion.

Headquartered in San Diego, California, this industry leader specializes in leasing cannabis cultivation facilities to some of the largest cannabis growers in the country, including Cresco Labs (CRLBF), Curaleaf Holdings (CURLF), and Green Thumb Industries (GTBIF). IIPR currently owns and leases 53 properties in 18 states.

Two Key Factors That Make this Company Unique

There are two key factors that distinguish this company from its peers.

#1 – IIPR Is One of the Few Stocks That Trade on the NYSE

Most U.S. cannabis companies are forced to trade on the Canadian Stock Exchange (CSE) because cannabis is still illegal at the federal level in the U.S. This makes it difficult or restrictive for many U.S. investors to buy these shares.

On the contrary, IIPR is allowed to trade on the New York Stock Exchange (NYSE) because, as a commercial real estate company, it does not sell cannabis.

This is an important distinction and benefit for IIPR. Trading on the NYSE means that millions of investors and powerful fund managers can buy shares and this is one of the biggest reasons there has been so much interest in this stock.

#2 – IIPR is Structured as a Real Estate Investment Trust (REIT)

IIPR also has a unique corporate structure. This company is structured as a Real Estate Investment Trust (REIT). REITs are required to pay 90% of their net income as a dividend. This has transformed IIPR into a very solid dividend stock and one of the few dividend stocks in the cannabis sector.

IIPR just raised its quarterly dividend by 7% to $1.50 per share. That gives IIPR a current dividend yield of 2.45%, close to a 100% premium of the S&P 500’s 1.3% dividend yield.

Trading on the NYSE and offering a hefty dividend have been strong catalysts for IIPR’s share price. But shares are also benefiting from impressive revenue growth as IIPR cashes in on the high-growth U.S. cannabis industry. Second-quarter earnings results from mid-August showed huge growth since last year. Here are a few highlights from the press release.

Q2 Earnings Financial Results

  • Generated total revenues of approximately $48.9 million in the quarter, representing a 101% increase from the prior year’s second quarter.
  • Recorded net income attributable to common stockholders of approximately $29.0 million for the quarter, or $1.17 per diluted share, and adjusted funds from operations (AFFO) of approximately $43.0 million, or $1.64 per diluted share (Note: AFFO per diluted share for the period includes the dilutive impact of the assumed full exchange of IIP’s $143.75 million of exchangeable senior notes (the Exchangeable Senior Notes) for shares of common stock).
  • Paid a quarterly dividend of $1.40 per share on July 15, 2021, to common stockholders of record as of June 30, 2021, representing an approximately 32% increase over the second quarter of 2020’s dividend.
  • Obtained an investment-grade rating from a national rating agency and closed on a $300.0 million private placement of 5.50% unsecured senior notes due May 2026 (the Unsecured Senior Notes).

Looking forward, IIPR should continue to grow revenue. The company continues to invest millions to add new cannabis cultivation facilities to its portfolio.

Here are a few deals IIPR announced last quarter.

Investment Activity

  • From April 1, 2021 through today, made five acquisitions for properties located in Illinois, Massachusetts, Michigan, and Pennsylvania; and executed three lease amendments to provide additional tenant improvements at properties located in Florida and Pennsylvania.
  • In these transactions, established new tenant relationships with Sozo Companies, Inc. and Temescal Wellness of Massachusetts, LLC, while expanding existing relationships with 4Front Ventures Corp., Green Peak Industries LLC (Skymint), Harvest Health & Recreation Inc., Jushi Holdings Inc., and Parallel.

IIPR Shares are up 84% in 12 Months and 33% in 2021

IIPR shares have been delivering big gains. Shares are up 84% in the last year and 33% in 2021.

12-Month Chart Innovative Industrial Properties (NYSE: IIPR)

Despite those big gains, I still expect more upside.

The relative strength index (RSI) below the chart is signaling that IIPR is far from being overbought. Looking forward, I expect IIPR to breakout and hit a new 52-week in the next few weeks.


About the Author & Cannabis Stock Trades

Michael Vodicka is an equity analyst with more than 20 years of experience trading and investing. His research has been featured in some of the industry’s most respected publications. He has been investing and leading investors in the cannabis sector since 2013.

Michael Vodicka

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